Can it turn its debt riddled, loss-making enterprise into an easy profit making opportunity?
A noticeable omission to Kampala's landscape has left an awkward gap in the city's transport system. Having rolled out onto the streets of Kampala in March last year to nullify the effects of a taxi strike, Pioneer Easy Bus (PEB) has never quite managed to sustain a healthy balance sheet long enough to enjoy its popularity in the capital.
It has rapidly become an essential part of the daily routine for Kampala's less well off commuters. Yet despite its popularity, at various points in its brief lifetime Pioneer has seriously considered ending operations. The Uganda Revenue Authority (URA) has made this relentless menace ever more possible by revealing the extent of the companies financial troubles.
Any reasonable examination of Uganda's transport system would reveal that the introduction of a comprehensive commuter transport service is of great necessity. The city suffers from chronic traffic congestion, arbitrary fare prices, precarious road safety and uncomfortable commuter condition. So the rationale of introducing an urban transport system is well supported, yet PEB has managed to turn an easy profit making opportunity into a debt riddled, loss-making enterprise.
On the morning of Feb 14, URA decided to impound Pioneer's buses for the company's failure to pay USh8bn in tax arrears. The strong action was taken after exhausting all other routes to recoup the money. URA later revealed that the buses would be auctioned off to pay the debt if Pioneer could not raise the money by any other means.
In a press release URA explained "The arrears arose out of PEB failure to honour the memorandum of understanding they entered into with URA last year to pay Customs taxes on the importation of their 98 buses."
Negotiations between PEB and URA have been in meeting regarding the matter of tax arrears, but it is staggering that the company managed to get into this mess considering the opportunity.
"This city needs buses"
In an interview with the Independent, John Masanda, Chief Commercial Officer of PEB, revealed some of the issues that the company is facing. He says emphatically that "this city needs buses; the future is buses." Masanda is certain that the only way forward for Kampala's inadequate public transit is to introduce a transport system akin to those in other cities around the world.
"Kampala is not the first city to contract public transport to a private entity. It happens in any leading city." Masanda's insinuation is that if Kampala is to follow in the footsteps of other successful metropolises, it needs to have an adequate and efficient transport system to cater for it. Also implied, is the contracting of this service to a 'private entity' rather than be directly run by the government or local authority.
This preferred means of providing a public service with private capital is now a global trend called Public Private Partnership (PPP).
In PPPs the assumption is that a private company can deliver the service more efficiently than a public body. In the case of PEB, Masanda says that the government was only expected to provide the right environment for the buses to operate.
"We have never asked for money from the government. The government does not have the money to invest hence we are tasked with that. But the government has the power to enact the laws and regulations that will be in play over the specific industry to allow us to operate"
Masanda also explains that as part of the agreement they were given concessions. "This means that we have to be favoured and given exclusivity. We have to operate in much more enhanced environment compared to the rest"
This concession, and number of other prerequisites in PEB's agreement to provide public transport in Kampala, has been a major limitation on its success. The exclusivity they requested on the routes is near impossible to grant given the archaic nature of public transport in the city, yet the entire operation of the buses rests on the notion that the concession agreement is applied.
The agreement outlines obligations from the Government of Uganda namely: bus lanes (dedicated and intermittent), gazetted bus stops, bus route exclusivity, a government guarantee of a return on the investment, and liaison services from KCCA with relevant authorities to ensure the contract is performed.
These are far reaching issues that would be difficult to implement overnight and would probably require a substantial timeframe to be executed. The feasibility of such demands being made is therefore unrealistic.
Uganda Taxi Operators and Drivers Association (UTODA), who have a long track record on transport in the city, told the Independent that they were not going to wait for the city to evolve. With plans to introduce buses of their own and phase out the taxis, they find it unreasonable for PEB to wait and expect so many demands. They see the requests as long-term goals that take time to develop.
UTODA told the Independent that they wouldn't mind cooperating with PEB. They added that they are prepared to enter the market without all the perks and demands that PEB wants and is confident that their business model would work.
Route of the problems
Masanda is adamant that the failure to meet the concessions and other arrangements has substantially affected the performance of PEB. It is therefore curious that despite the lack of these arrangements being provided, PEB went ahead and started operating anyway.
PEB's defence was to point out the circumstances in which they started operating was during a crisis. "A presidential directive, Clause 98 of the Ugandan constitution to be precise, was quoted to us. So even if we didn't want to start, we were going to do so one way or another. It was national crisis. We had to alleviate that crisis" responded Masanda
Indeed, many of PEB's problems are routed in the premature decision to start operating. With nothing formally in place, the agreements still ambiguous and pressure on them to start; the rough ride for PEB began.
They had outlined a very clear programme of how the buses were to operate: the number of journeys, hours of service, fare prices and prospective passengers they expected to ferry. The subsequent lack of requisite infrastructure dramatically reduced the company's profits. Masanda complains that the authorities have not provided the environment that they agreed upon to operate the buses.
Susan Kataike, Public Relations Officer for the Ministry of Works and Transport also identified the problem as down to poor planning. "Their predictions and research of the market was all wrong. They did not take all the factors of the industry into consideration, particularly the viability of their concessions."
12 Mar 2012: PEB starts operating in the Kampala City
13 Mar 2012: Lord mayor Erias Lukwago calls PEB's operations illegal
10 Oct 2012: Pioneer bus workers strike over lack of pay then later call it off strike as it was only a delay
20 Oct 2012: Pioneer bus seeks UTODA's help and cooperating to save it from collapse
19 Nov 2012: PEB threaten to end operations in press release after a stand off with authorities over contract terms
30 Dec 2012: Parliament wants Pioneer Easy bus deal reviewed
6 Feb 2013: House orders KCCA to sign new agreement with PEB, Wakiso and Mukono
14 Feb 2013: URA executed a warrant of distress against Pioneer Easy Bus by impounding all their buses due to failure to pay tax arrears amounting to sh8bn. Auctioning the buses
16 Feb 2013: Wakiso and Mukono demand Central Government to pay over Sh940m lost during the period PEB has operated in their areas
18 Feb 2013: PEB has lost Shs13.2 billion claims Albert Muganga, a major stakeholder in the company because KCCA was not fulfilling its contractual obligations.
Source: Monitor, New Vision, and Observer
The stuttering start that PEB has experienced is unfortunate for the city and its commuters. Its introduction was well received; cheap, comfortable and was a well-deserved break from the chaos of the taxis.
PEB boast of its socio-economic impact on the city. They've claimed responsibility for bringing down the cost of transport. Taxis have ben forced to reduce their fares in order to compete for passengers whereas before they could arbitrarily set them. The 'peak-hour' journeys have allowed people to better plan their commutes, as they are better aware of the buses arrivals and departures. This is a stark contrast to taxis, which operate under a disorderly laissez faire system.
Whilst most of the problems are of PEB's own making, namely naively high expectations of the city's infrastructure and premature entrance, some have been out of their control.
The role of Kampala Capital City Authority (KCCA) is a case in point. Originally called Kampala City Council (KCC), the change has confused much of the original agreements. The coordination between the city's officials, Lord Mayor Erias Lukwago and Executive Director of KCCA Jennifer Musisi, has also been a hindrance because of their constant clashes.
The company has also been accused of poor management, which is evident in the unusually high turnover of staff. This was further exacerbated when it was revealed that some stewards (the people who issue tickets) were making their own tickets and taking home the profits. Masanda also disclosed that some of their employers left because they simply weren't competent enough. Yet UTODA told the Independent that some of PEB's management has defected to their rivals. In this sense PEB has not been wholly responsible for their misfortune, and has even gone to lengths to resolve these matters.
Obligations of KCCA/GOU in the concessions
Exclusive rights in Eastern and Western zones of the city
To construct/provide the necessary infrastructure, including bus lanes, gazette routes, bus stages/bus/stops
To issue a performance bond as comfort to the lender
To determine the fares and review them annually
To provide a liaison service with government departments
To facilitate entry and exit and issuance of statutory permits when required
To set service delivery standards and performance indicators
To monitor the implementation of the project
To evaluate the service after 1 year and accordingly extend the contract to the full 5 year term
SOURCE: Report of the Sectorial Committee on Public service and local government. December 2012
The paradox Kampala faces is that while a comprehensive public transport system is well overdue, the cities infrastructure is simply not ready to handle it. There are more commuters than the narrow roads can handle indicating the cities growing pains; yet any introduction of a public transport system would be premature.
PEB's cause is noble: to reduce congestion in the city whilst providing public transport; the results are excruciating. But the future is not all doom and gloom. Negotiations between the transport provider and URA have been positive and the buses are likely to return to the streets soon. Ideally the retreat will allow PEB to rethink some of its strategy and avoid the constant turbulence.
The term pioneer evokes thoughts of innovation, development and venturing into unknown territory. Whilst PEB is Kampala's first attempt at a comprehensive public transport system it has hardly innovated or developed the field, but with the impounding of the buses it has found itself in unknown territory.